Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Tuesday, July 05, 2005

Changes in how inside information is distributed will affect IRO’s.

Issuers face greatly changed rules on how they must disseminate inside information, following the publication of the advice on transparency published this week. News must be distributed (pushed) to news agencies and newspapers across the EU, ‘fast’ and as close to simultaneously as possible. Issuers can undertake this themselves (in which case they must follow certain strict requirements) or they can use one of the competing service providers.

The Transparency Obligations Directive will be implemented in member states of the EU, starting in January next year. It introduces Europe rules – for the first time – on how news should be sent out, as well as a common standard for disclosure of major shareholdings (above 5%), and issues on half yearly reporting and equivalence of home country requirements for non EU issuers.

First the requirements. Issuers will need to make a choice as to whether they manage the distribution process themselves. In my view the vast majority will use a service provider, simply because life is too short. Specialist skills such as sending news electronically, with meta data identifying the issuer, using secure internet protocols, to newspapers, news agencies and key retail investor websites, are not something most issuers have – or wish to develop.

The good news is that by introducing competition, the regulators have ensured that service provider costs will be kept to a minimum. Previously, where an exchange has operated a monopoly, the costs have been “buried” in a listing fee. Now these costs will become transparent. If the UK – where a similar regime was introduced in 2002 – is anexample, costs will become highly competitive.

One challenge for issuers will be in ensuring that their chosen service provider has the skills necessary. The new rules remove the requirement for service providers to be ‘approved’ by their regulator, leaving the issuers to make their own choices. And since meeting disclosure is now judged by delivery to a service provider (not when the announcement is in the public domain) the choice is critical.
My advice is to look for providers that have published their own ‘audit’. This will demonstrate how they have meet the requirements, and reassure you that the distribution will be managed effectively.


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